Stochastics for the worst case: distributions and risk measures for minimal returns
Distributions for returns are used to compute the capital charge for portfolios in investment banks. The mainstream definition of returns is based on closing prices and neglects the important effects of intraday trading activity on the losses . In this paper we introduce ''minimal returns'', a definition of returns that accounts for intraday trading and gives a worst-case approach on losses. We suggest an appropriate distribution for minimal returns that can be used to compute Value at Risk and coherent risk measures, as suggested by Artzner et al. (1997).
|Date of creation:||28 May 2003|
|Date of revision:|
|Note:||Type of Document - PdfTeX; prepared on Linux; to print on HP;|
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- Philippe Artzner & Freddy Delbaen & Jean-Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228.
- Cox, John C. & Ross, Stephen A. & Rubinstein, Mark, 1979. "Option pricing: A simplified approach," Journal of Financial Economics, Elsevier, vol. 7(3), pages 229-263, September.
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